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Decoupling from coal?

This week BHP Billiton and Mitsubishi announced they are to slash 700 jobs at their coal mining joint venture in Australia. The joint venture, which includes seven coal mines and a coal terminal is the world's biggest exporter of coal used in steelmaking.

Coking coal mines have seen production plummet after prices hit a six-year low because of global oversupply. But it’s not just the supply side that is making an impact. By the end of the year, China’s coal imports could be 9 percent under 2013 levels and even lower prices aren’t stoking new demand.

Part of the reduced demand is due to a slowing Chinese economy. However perhaps more significant is that China seems to be starting to “decouple” its growth from coal consumption. In other words, China’s economy could continue to expand even while its coal consumption drops – something not even considered a couple of years back.

That’s due in large part to China’s declared war on pollution stemming from public anger at the choking smog. The central government released a draft version of a law on Sept. 10 that amounts to an outright ban on coal with a high sulfur and ash content. China is also considering a permanent limit on the overall consumption of coal. The current five-year plan aims for consumption of 4.1 billion tonnes of coal in 2015 but in the next five-year plan, which will run from 2015-2020, China could cap its coal consumption at the same 4.1 billion tonnes-per-year level, and even ratchet it downwards.

And in 2016, efforts to slash coal demand will likely only accelerate, considering China’s announcement that it will introduce a nationwide cap-and-trade program. If successfully implemented producers will be incentivized to switch to cleaner sources of energy.

If any shipping analysts have a view we would love to hear it. In Tradewinds yesterday there was an article on China’s oil demand reaching its highest level in a year. The story of China is changing and perhaps now oil is word on everyone’s lips. 

You can tweet Spinnaker's Commercial Division Manager Eric Branson, who wrote this guest article, @SJ_EricBranson

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